There's another challenge in the effort to get rid of the friction in mobile payments.
Telefónica Germany is scheduled to start offering a new
NFC payment service next month. The P2P service, initially available only in Germany, will allow users of NFC-enabled smartphones to transfer funds between them, with the use of a PIN. There will be no need to exchange bank information or credit card details. The system authorizes the transaction against the preferred method of payment associated with the user's telephone number.
This isn't the first attempt at this. American banks have similar offerings in the works or under testing. And, of course, there was the original PayPal. I still remember their early commercials with James Doohan (Star Trek's "Scotty") showing how people could "beam" money between Palm OS's PDAs. At that time, beaming was restricted to infrared communications between compatible devices. Later, the service was abandoned due to security concerns, and PayPal moved to other systems, mostly as the eBay preferred payment method.
With near field communications (NFC), money "beaming" can
become the new way to share a tab, pay the cab driver, settle your bill at small stores, etc. The main advantage, if the system is implemented properly, is that there is no need to have a permanent data connection. NFC has integrated security and encryption, and adding the pin and chip of the smartphone ensures a safe transaction.
Current handheld POS systems work well over cellular networks if the signal is strong and the data network available. But many users, and merchants, are beginning to see problems when cellular networks are overloaded because of congestion with transactions taking longer waiting for authorization. NFC can solve some of these issues preauthorizing small transactions and processing them in batches later.
Telefónica is also launching a mobile wallet service for
users of their NFC-enabled handsets. This service will allow users, both in Germany and abroad, to use their smartphones to pay at locations where MasterCard PayPass technology is used.
To install the mobile wallet, the users need to load their
phones with a new NFC-enabled SIM card. Then, using a mobile wallet app, the user registers using Telefónica's mpass service. Telefónica issues a new payment card, which is automatically added to the digital wallet, then the user can start shopping.
It is interesting to note that Telefónica has chosen the
German market for this trial. Germans have not been fond of credit cards and electronic payments for many years, and people still use Eurocheques -- checks guaranteed by the bank -- to pay at most merchants, especially at grocery stores and gas stations. If successful, the new payment system could change the way people pay for most small purchases, getting closer to a cashless society.
I believe CIOs need to pay close attention to these
developments. The new payment system is just another example of the war for wireless payments in Europe. The previously discussed ING-MasterCard
deal in Holland for mobile shopping is another example.
To make it work, CIOs need to concentrate on the often conflicting ideas of reducing friction while keeping the transaction secure. But if you make it happen, there is a growing and lucrative market to tap.